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Tesco Q1 Results: What The Analysts Said

Published on Jun 23 2016 3:00 PM in Retail tagged: Featured Post / Tesco / Kantar / Barclays / Analysts / Stifel / Bernstein

Tesco Q1 Results: What The Analysts Said

UK retailer Tesco posted a first quarter like-for-like group sales increase of 0.9% this morning, with a 0.3% increase in its home UK market. Here's how some of Europe's top analysts viewed the retailer's performance.

Bruno Monteyne, Bernstein Research: "Second quarter of positive UK LFL growth for first time in 5 years. Produce and Meat outperformed the rest of the UK market by 5%, these are two of the areas which Tesco identified as areas where they under-trade at the full year results presentation. […] This is another set of good results for Tesco, excluding the Farm Brands investment LfL was 1.0%, accelerating even from the Christmas quarter. Despite all the fears of Asda, Amazon, Aldi, Tesco's recovery remains on track."

Ray Gaul, Kantar Retail: "These results vindicate a number of tough but important actions - such as focussing on permanently lower prices, lower promotional activity, divestment of non-core businesses, headcount reductions - undertaken by Dave Lewis since he took over the business in 2014. We expect the trading environment to remain tough for Tesco, and things could get even tougher if the UK votes out of the European Union, which is likely to impact grocery prices and currency exchange rates. Inflationary conditions caused by the EU exit might increase the erosion of Tesco shoppers to discount chains like Aldi and Lidl. Secondly, major fluctuations in the exchange rate could put further pressure on the retailer’s operations in Poland, Hungary, Czech Republic and Slovakia, which are still grappling with growth and profitability issues."

James Collins, Stifel: "We continue to believe that Tesco management is making the right decisions to build a sustainable proposition which can deliver profit growth, but that this will take longer than the market originally anticipated to feed through to margin improvement. We also have slight reservations about the quality of UK sales growth, with promotional participation still high, and the policy in the online business of prioritising profitability over sales/customer choice."

Barclays European Food Retail Equity Research: "Tesco has reported a 1Q UK LFL sales increase of +0.3%, a little higher than our forecast (and BBG consensus) of +0.2%, representing the second consecutive quarter of positive UK LFL sales growth. The company has also talked very positively about the early performance of its 'Farm Brands', with volume growth in the produce and meat categories outperforming the market by c5ppts. International LFL growth was 3.0%, a little lower than the 3.8% of 4Q but a fourth consecutive quarter of growth after an extended period of declines. Tesco has also announced the sale of its 'Harris + Hoole' coffee chain – this probably has limited P&L or balance sheet impact but continues the recent 'tidying up' activity to leave Tesco better focused on turning around the core business."

David Alexander,Verdict Retail: "The green shoots of recovery are beginning to establish themselves at Tesco, as it ushers in its second consecutive quarter of positive LFL growth. […] Phil Clarke’s doomed strategy of diversification is rapidly being swept aside and instead a more focussed grocery proposition is emerging. The confusing array of couponing and promotions that alienated customers in the past, is being replaced by more stable, low prices and focussed offers on key lines. Meanwhile, a reduction in the bloated SKU count, and improvements in availability, has helped to improve reliability. Cosmetic changes to Tesco’s proposition like the rebranding of its fresh food ranges may draw the ire of commentators, but it is the profound changes to Tesco’s proposition and strategy that are proving to be pivotal in restoring that crucial line of trust between the grocery giant and its customers."

David Gray, Planet Retail: "As expected, Tesco has reported another domestic like-for-like increase driven by some decent volume growth across the core food business. This is encouraging news, considering Tesco has been putting major efforts into improving the proposition through range enhancements, price investments and store refreshes (where it is taking a more mission-based approach to store layout). Upward-facing like-for-likes also come at a time when deflation is still an issue for the wider industry, showing just how far Tesco has come. […] The big story of the quarter is that Tesco is now free of the shackles of the failing Turkish business - an operation which, for years, has been a drain on vital group cash and management resources. The disposal will liberate resources to sustain focus on domestic improvements."

© 2016 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. To subscribe to ESM: The European Supermarket Magazine, click here.

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